Risk Governance & Control: Financial Markets & Institutions / Volume 11, Issue 1, 2021

GLOBAL FINTECH ENTREPRENEURSHIP

AND ITS INFLUENCING FACTORS:
AN EVOLUTIONARY ECONOMIC
ANALYSIS
Thomas Holtfort *, Andreas Horsch **, Joachim Schwarz ***
* Corresponding author, FOM University of Applied Sciences, Essen, Germany
Contact details: FOM University of Applied Sciences, Leimkugelstr. 6, 45151 Essen, Germany
** Chair of Investment and Finance, Technische Universität (TU) Bergakademie, Freiberg, Germany
*** Faculty of Business Studies, University of Applied Sciences Emden-Leer, Emden, Germany

Abstract

How to cite this paper: Holtfort, T.,
Horsch, A., & Schwarz, J. (2021). Global
fintech entrepreneurship and its
influencing factors: An evolutionary
economic analysis. Risk Governance and
Control: Financial Markets & Institutions,
11(1), 61-79.
https://doi.org/10.22495/rgcv11i1p5
Copyright © 2021 The Authors
This work is licensed under a Creative
Commons Attribution 4.0 International
License (CC BY 4.0).
https://creativecommons.org/licenses/
by/4.0/
ISSN Online: 2077-4303
ISSN Print: 2077-429X
Received: 22.12.2020
Accepted: 26.02.2021
JEL Classification: G20, M13, O16, O30
DOI: 10.22495/rgcv11i1p5
Fintech entrepreneurship has already influenced financial markets
and their players worldwide in a disruptive, but also a risky way
(Thakor, 2020; Zeranski & Sancak, 2020). In this context, it seems
worthwhile to analyze which factors drive the design and
development of global fintech entrepreneurship. Thus, the paper
takes fintech-related research a step further by exploring the drivers
of fintech evolution in different countries and continents that
display different levels of fintech activity. For this purpose, first
economic, technological, legal, and cultural factors influencing
the development of fintech entrepreneurship are examined from
an evolutionary point of view, and second, a generalized linear
mixed model is used in order to evaluate the statistical relevance of
these factors on fintech entrepreneurship more comprehensively.
The analyzed data period from 2000 to 2017 also makes it possible
to assess the influence of the dot.com bubble and the financial crisis
on fintech entrepreneurship. The results of the empirical analysis
suggest that the gross domestic product (GDP), regulatory burden,
government tech procurement and the degree of individualism are
important drivers of fintech startup activity. These findings help
gauge the present and future market position of fintechs, leading to
implications for entrepreneurs, competitors, and regulators alike.

Keywords: Fintech Entrepreneurship, Startups, Innovation, Financial

Institutions, Evolutionary Economics

Authors’ individual contribution: Conceptualization – T.H. and A.H.;

Methodology – T.H., A.H., and J.S.; Formal Analysis – J.S.;
Investigation – T.H. and J.S.; Writing – Original Draft – T.H. and A.H.;
Writing – Review & Editing – T.H. and A.H.; Visualization – T.H.

Declaration of conflicting interests: The Authors declare that there is no

conflict of interest.

1. INTRODUCTION digitalization. Defined as “technologically enabled

In line with Schumpeter’s principle of creative
destruction, new financial institutions1 called
“fintechs” are disrupting the financial sector of
the 21st century by innovative services and
1
According to the seminal contributions of Nobel Laureate Douglass C.
North, “institutions” are the mere “rules of the game”, while he calls
the “players” of the very game “organizations” (North, 1990). In financial
economics and markets, however, “financial institutions” includes these
organizations (e.g., banks, insurers, and, nowadays, fintechs, too), see Merton
(1995), Rampini, Viswanathan, and Vuillemey (2020), or the textbook classic
of Saunders and Cornett (2019). This paper uses the latter, broader definition
of the term.
financial innovation that could result in new
business models, applications, processes, or
products with an associated material effect on
financial markets and institutions, and the provision
of financial services” (Thakor, 2020; on the difficulties
of definition, see Schueffel, 2016; Dorfleitner, Hornuf,
Schmitt, and Weber, 2017, p. 5-6; Gimpel, Rau, and
Röglinger, 2018), we thus consider the latest
generation of fintechs only, but not their
predecessors (on the development from 1866 to
2008, see Thakor, 2020). Although a global
phenomenon, a closer look at the number and types

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 Risk Governance & Control: Financial Markets & Institutions / Volume 11, Issue 1, 2021
of these startups reveals their heterogeneous
evolving in different countries of different
continents. Fintech entrepreneurship already has
impacted financial markets and their participants
significantly (Arwas & Soleil, 2015; Deutsche Bank,
2015; Haddad & Hornuf, 2016; KPMG, 2017a;
Cropper & Walshe, 2018); impressing signs in
the last years were the U.S. Nasdaq Stock Exchange
launching its own FinTech Index with 50 companies
in July 2016, which currently includes 49 companies
(Wadhwa, 2016; Nasdaq, 2017, 2021) and the
German lead index DAX including a fintech company
(Wirecard) and at the same time excluding
a traditional financial intermediary (Commerzbank)
in September 2018 (Deutsche Börse, 2018). Whereas
the business model of Wirecard turned out
expectedly faulty (according to poorly designed
processes in general and neglected governance in
particular) just recently (extensively, see Zeranski
and Sancak, 2020), it seems worthwhile to research
which factors drive – or throttle – the design and
development of fintech entrepreneurship, and are
responsible for the international diversity of trends.
This paper aims to explain the first observable
differences of the U.S. American, European, and
Asian fintech development from an evolutionary
(economics) point of view. The ideas and
fundamentals of evolutionary economics can be
traced back to early Austrian and institutional
economics, as represented by Menger (1871), Veblen
(1898), Marshall (1898), Schumpeter (1911), Hayek
(1945), and von Mises (1949), who provided seminal
contributions (addressed in Section 3). After
the groundbreaking work of the aforementioned,
mostly “Modern” Austrian Economics (MAE)
researchers, especially Nelson and Winter (1982),
further elaborated the evolutionary approach. From
biology, they adopted the concept of natural
selection to construct a precise and detailed
evolutionary theory of business behavior and were
thus able to develop models of competitive firm and
industry dynamics under conditions of growth and
technological change (Nelson & Winter, 1982, 2002).
After exploring possible economic,
technological, legal, and cultural drivers of fintech
evolution, the paper secondly carries out a thorough
panel econometric analysis by a generalized linear
mixed model in order to reach deeper and solid
conclusions. The results of the empirical analysis
suggest that especially the gross domestic product
(GDP), regulatory burden, government tech
procurement and the degree of individualism are
important drivers of fintech startup activity. These
findings can classify the relevance of these drivers in
different countries, helping scientists as well as
(prospective) fintech entrepreneurs, fintech
competitors, and fintech regulators to understand
the backgrounds of the fintech market as a whole
(e.g., market structure) in general and the dynamics
of startup activity in particular.
In this paper, we, therefore, examine the
evolution of global fintech startups in 76 countries
in the period from 2000 to 2017 with respect to
various economic, technological, legal, and cultural
determinants. Thus, our research period includes
the dot.com crisis of the turn of the century and also
the subprime/financial crisis of 2007-2008, enabling
us to analyze their influence in particular.
Accordingly, the paper makes a further scientific
contribution to the analysis of global fintech
entrepreneurship due to the length of the research
period, the particular referring to effects of crises,
the type of influencing factors, and the application
of an evolutionary approach.
62
After recalling the raison d‟être of financial
intermediaries based on transaction cost and
information asymmetry considerations, we present
a review of previous research in Section 2. Section 3
contains the research methodology with
a descriptive analysis of the global fintech market
development, an evolutionary analysis of possible
drivers in different countries, a description of data,
an introduction of the variables used in the
quantitative analysis, and a derivation of
the hypotheses. Section 4 presents and discusses
the empirical findings, and derives their basic
implications. Finally, Section 5 concludes, at the
same time suggesting lines of future fintech
research that appear promising.
2. THEORETICAL BACKGROUND AND LITERATURE
REVIEW
Financial markets are characterized according to
the theory of new institutional economics by
informational asymmetries between borrowers and
lenders (seminal, see Brealey, Leland, and Pyle, 1977;
Campbell and Kracaw, 1980; Diamond, 1984).
Considering these information asymmetries between
market participants, which can significantly throttle
or even prevent financial contracts, financial
intermediaries, e.g., banks, insurance companies,
mutual funds, or even (financial) information
intermediaries like credit rating companies, can
offer an institutional design to effectively and
efficiently solve the information problem.
The function of these intermediaries is to support
the transfer of funds from investing to financing
parties at low transaction cost (on transaction cost,
see the seminal contributions of Coase, 1937;
Williamson, 1975; on their role for financial
intermediation, Scholes, Benston, and Smith, 1976).
In general, fintechs are financial intermediaries and
thus can exist because they help mitigate
asymmetric information and transaction cost
(He et al., 2017). Compared to traditional
intermediaries like banks, they do so in innovative
ways, as they operate online/internet-based and by
the use of special technology to improve financial
activities (Schueffel, 2016). The ability to automate
processes (and to raise efficiency) based on
technological advantages could allow fintechs to
offer customers products less expensive while
gaining more valuable data about customers, at the
expense of traditional banks (Deutsche Bank, 2015;
Olanrewaju, 2014; McKinsey & Co., 2015; Paul, 2016;
Stulz, 2019; Thakor, 2020; Torrens, 2016).
Previous research on fintech entrepreneurship
topics predominantly focused on specific fintech
types, distinguishing them against the backdrop of
the typical value chain of a traditional bank. Table 1
displays the fintech prototypes identified, their
frequent subtypes, and also important research
contributions related to them. According to the
contributions included, the synopsis is structured
into four various types of fintech startups (Stulz,
2019; Thakor, 2020):
 financing (e.g., crowdfunding, crowdlending,
or factoring solutions),
 asset management (e.g., robo-advice, social
trading, or personal financial management software),
 payment services (e.g., mobile payment
solutions, e-wallets, or cryptocurrencies), and
 other business activities by fintech startups
(e.g., insurance, regtech, or other technical
advancements).

Table 1. Systematization of previous fintech research (regarding categorization) by the year of publication
Financing
Crowdfunding, crowdlending, factoring
solutions
In the area of equity crowdfunding and
reward-based crowdfunding, Mollick (2014)
examined the dyna-mics of success and failure
among crowdfunded ventures.
Ahlers, Cumming, Guenther, and Schweizer
(2015) analyzed the determinants of funding
success of equity crowdfunding.
Burtuch, Ghose, and Wattal (2015) researched
crowdlending investors’ privacy preferences
when making an investment decision.
Serrano-Cinca, Gutiérrez-Nieto, and López-
Palacios (2015) evaluated the likelihood of
loan defaults of crowdlending.
Bernstein, Korteweg, and Laws (2016)
investigated more generally the determinants of
early-stage investments on AngelList and find
that the standard investor reacts to information
about the founding team, but not to existing lead
investors.
Hornuf and Schwienbacher (2016) studied the
regulation of equity crowdfunding.
Iyer, Khwaja, Luttmer, and Shue (2016)
evaluated the likelihood of loan defaults of
crowdlending.
Lin and Viswanathan (2016) analyzed the
geography of investment behavior in the area
of crowdlending.
Vulkan et al. (2016) analyzed the determinants
of funding success.
Fenwick et al. (2017) examined the
crowdfunding market for small and medium-
sized enterprises.
Risk Governance & Control: Financial Markets & Institutions / Volume 11, Issue 1, 2021
Fintech category
Asset management
Important subtypes
Robo-advisory, social trading, financial
Mobile payment, e-wallets, cryptocurrencies
software
Tai and Ku (2013) investigated the determinants
of stock investors’ intention towards using
mobile stock trading.
Arwas and Soleil (2015) argued that successful
robo-advice 2.0 services will focus not on the
technology, but on the underlying investor and
their very human needs.
Doering et al. (2015) analyzed social trading
platforms.
Fein (2015) explored whether robo-advisors are
fiduciaries and provide personal investment
advice, minimize costs, and are free from
conflicts of interest.
Altenhain and Heinemann (2017) showed that
the segment of wealthy internet savvy
investment customers in Germany can be
regarded as hybrid in respect of their demand
for digital as well as personal asset management
services and products.
Berger, Wenzel, and Wohlgemuth (2017) examined
16,964 investment observations at eToro, the
world’s largest social trading platform.
Kaya and Schildbach (2017) shed light on robo-
advisory business models, investment strategies
and clients, as well as the performance and super-
vision of robo-advisory services.
Jung et al. (2018) took the perspective of
information system researchers and discuss the
current state-of-the-art of robo-advisory.
63
Payment services
Mjølsnes and Rong (2003) investigated mobile
payment and e-wallet services.
Mallat (2007) investigated in mobile payment
and e-wallet services.
Contini, Crowe, Merritt, Mott, and Oliver (2011)
depicted the current mobile payments eco-
system in the U.S and analyzed barriers, gaps
and opportunities.
Kazan and Damsgaard (2014) evaluated four
types of market actors which are incumbents
and disrupters in the payment industry.
Böhme, Christin, Edelman, and Moore (2015)
analyzed platform design principles and risk or
regulatory issues according to virtual currencies
such as Bitcoin or Ethereum.
Dahlberg et al. (2015) discussed how the
ecosystem of m-payment is expected to change
due to technology changes.
Gao and Waechter (2015) examined the role of
initial trust in user adoption of mobile
payments.
Gandal and Halaburda (2016) analyzed platform
design principles and risk or regulatory issues
according to virtual currencies such as Bitcoin or
Ethereum.
Gozman et al. (2018) examined fintech startups
who participated in SWIFT competition over a
three-year period.
Other business activity
Insurtech, regtech, technical advancements
Gabor amd Brooks (2016) explored the growing
importance of digital-based financial inclusion
as a form of organizing development
interventions through networks of state
institutions, international development
organizations and fintech companies.
Nicoletti (2016) examined in how far digital
insurance is an important trend in private and
corporate insurance.
Arner, Barberis, and Buckley (2017) analyzed why
regtech developments are leading toward a
paradigm shift of financial regulation.
Braun and Schreiber (2017) took a look at the
current insurtech landscape including business
models and the disruptive potential.
Cropper and Walshe (2018) showed that
technology has the potential to lessen the burden
of regulation by increasing efficiency,
transparency and reducing friction.
In the area of insurance technology, Yan et al.
(2018) evaluated the potenial from
the perspective of enablement for financial and
insurance services.
 Risk Governance & Control: Financial Markets & Institutions / Volume 11, Issue 1, 2021
The main findings of the previous research
papers can be summarized as follows:
 Fintechs represent new competitors for
traditional banks in various areas of banking
(Dahlberg, Guo, & Ondrus, 2015; Doering, Neumann,
& Paul, 2015; Fenwick, McCahery, & Vermeulen,
2017; Gandal & Halaburda, 2016; Kaya & Schildbach,
2017; Vulkan, Astebro, & Fernandez Sierra, 2016).
 Parallel to competition, also cooperation
opportunities for traditional financial intermediaries
arise (Gozman, Liebenau, & Mangan, 2018).
 Regulation (and also regtechs) will play
an important role for the further development of
fintechs (Cropper & Walshe, 2018; Fenwick et al.,
2017; Hornuf & Schwienbacher, 2016).
 Fintechs increase complexity at many levels
(e.g., markets, innovations, stakeholders, and
technologies; see Gozman et al., 2018).
 Currently, financial markets experience
the second digitization wave, which focuses on
smart services based on algorithms and intelligent
software increasing the degree of automation (Jung,
Dorner, Glaser, & Morana, 2018).
 Unlike banks, financial intermediaries of the
insurer type are increasingly profiting from digitization
(Nicoletti, 2016, Yan, Schulte, & Chuen, 2018).
Until now, only a few studies have analyzed the
(processes defining the) fintech market as a whole,
which makes the investigation of the market
structure from an evolutionary point of view
worthwhile. Dushnitsky, Guerini, Piva, and Rossi-
Lamastra (2016) give an extensive overview of
the European crowdfunding market and conclude
that legal and cultural traits affect the formation of
crowdfunding platforms. Furthermore, venture
capitalist investment in global fintech startups was
examined by Cumming and Schwienbacher (2016).
Demertzis, Merler, and Wolff (2018) consider
the European fintech market with respect to
the increasingly urgent question of justifiable and
necessary EU regulation. In particular, the extensive
study of Haddad and Hornuf (2016) analyzed
the emergence of the global fintech market in
Figure 1. Summary statistics of fintech startup activity for the full sample by the year 2000-2017
450
400
350
300
250
200
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Nbr. Fintechs started (total) Financing
Source: CrunchBase (https://www.crunchbase.com/).
64 countries from 2005 to 2014 and addressed
various economic and technological influencing
factors, but without considering a period that
includes more than the latest financial crisis.
3. RESEARCH METHODOLOGY
The global fintech market has basically grown by
investments (venture capital, private equity, or
mergers and acquisitions) from $930 million in 2008
to over $27 billion in 2017 (Accenture, 2014, 2016;
He et al., 2017; KPMG, 2017a). To illustrate
the various patterns of fintech evolution from 2000
to 2017, we decided to focus first on a selection of
the largest fintech markets. In this respect,
a difference is made (in view of the later
evolutionary analysis) between the top 10 European
countries, the U.S., and the top 10 Asian countries
(both top 10 selections according to the number of
fintech startups), referring to the distinction of
the four fintech sectors of our second section
(companies were classified according to their main
business area, so that multiple assignments were
avoided, i.e., contrary to the study by Haddad and
Hornuf, 2016). Hereafter, we analyze the startup
activity in these largest fintech markets in order to
provide better knowledge of differences of market
structures on the one hand, and the influence of
the financial crisis on activity patterns on the other
hand. The data used was retrieved from the
CrunchBase database, which contains detailed
information on worldwide fintech startup formation
(the database is compiled of more than 200,000
corporate contributors, over 2,000 venture partners,
and millions of web data points It should be noted
that companies that were involved in M&As are not
permanently available under their former
firm name on CrunchBase), their financing, and
their main fields of business (CrunchBase,
https://www.crunchbase.com/), and has already been
used in a number of financial research articles
(Bernstein et al., 2016; Cumming et al., 2016; Haddad
& Hornuf, 2016).
Asset Management Payment Services Other Business Activities
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As Figure 1 shows, there was a comparably
small and even declining number of fintech startups
until 2003, i.e., after the bursting of the dot.com
bubble in March 2000, which made the environment
more difficult for startups in general (as investors’
trust had been severely damaged, see Taylor, 2006).
From 2003 to 2008, the number of fintech startups
increased modestly and not continuously, being
severely interrupted by the year of the Lehman
collapse. Against the backdrop of recovering
economic conditions, startup numbers returned to
a higher level than before the collapse of the
dot.com bubble. Then, between 2009 and 2011,
there is a steep increase in the fintech startup count
following the financial crisis (among other reasons,
due to a widespread lack of trust in traditional
banks; see Kantox, 2014; Knell and Stix, 2015;
analogously on insurers, see Schanz, 2009), with
the number of startups founded in 2011 being twice
as large as in 2008. Thus, there is a different
reaction pattern of fintech startups in the wake of
both crises, which could be due to “internet firms”
being at the heart of the dot.com bubble, while, in
contrast, the subprime and financial crisis seemed
more closely related to traditional than tech-based
financial intermediaries. On the contrary, the latter
Figure 2. Summary statistics for the U.S. sample by year in terms of fintech startup activity 2000-2017
250
200
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Nbr. Fintechs started (total) Financing
Source: CrunchBase (https://www.crunchbase.com/).
Figure 2 presents statistics for the U.S. fintech
market by year during the period 2000-2017 and
shows that U.S. fintech startups represent more than
50 percent of the entire sample (1539 of 2951).
Thus, the U.S. has the overall strongest fintech
activity in the sample, internationally followed by
the United Kingdom, India, Canada, and Germany2.
Likewise, Figure 2 demonstrates that fintech
startups reforming financing activities constitute
2
Detailed statistics are available from the corresponding author upon request.
crisis incentivized market participants to look for
new (banking) options. Finally, it seems that the
fintech companies have learned from the dot.com
bubble and have matured according to better
technology and services (Ruef, 2018).
In 2015, a sharp decline in the number of
fintech startup formations could be observed,
followed by an even stronger decrease in 2016 and
2017. Fintech startups providing financing services
represent nearly 60% of total startups (1750 out of
2951), suggesting that the demand for innovation in
financing activities was considered most substantial
(probably due to the regulatory innovations of
Basel II/III/IV and its effects on bank lending,
especially to small and medium-sized companies).
Fintech startups providing payment services
constitute the second-largest group (20% of 2951),
while the other two types of fintechs represent
considerably smaller categories. To investigate
different dynamics in industrialized countries on
the one hand, and developing countries on the other,
we present descriptive statistics for the U.S. sample
and also for the 10 most relevant European and
Asian countries in terms of fintech activities
(number of fintech companies started).
Asset Management Payment Services Other Business Activities
more than 60 % of all U.S. fintech startups (927 of
1539), followed by the other categories similarly in
the same order of importance as for the whole
sample. Figure 2 displays that since 2015 and above
all in 2016 and 2017 there is a sharp decline in U.S.
fintech startup activity (KPMG, 2017b; Claessens,
Frost, Turner, & Zhu, 2018) leading to a market
consolidation at a comparably high level.
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Figure 3. Summary statistics for the 10 most relevant European countries

in terms of fintech startup activities 2000-2017

400

350

300

250

200

150

100

50

0
UK Germany Spain France Switzerland Netherlands Ireland Sweden Denmark Finland

Nbr. Fintechs started (total) Financing Asset Management Payment Services Other Business Activities

Source: CrunchBase (https://www.crunchbase.com/).

Figure 4. Summary statistics for the 10 most relevant Asian countries

in terms of fintech startup activities 2000-2017

140

120

100

80

60

40

20

0
India China Singapore Hong Kong Indonesia Japan South Thailand Philippines Malaysia
Korea

Nbr. Fintechs started (total) Financing Asset Management Payment Services Other Business Activities

Source: CrunchBase (https://www.crunchbase.com/).

Figure 3 presents fintechs startup numbers (similar to Europe in order to emphasize

by the country for the 10 most relevant European
countries during the period 2000-2017, as
a countrywise presentation helps to underline
the differences more clearly. The United Kingdom is
at the top of the list (nearly 50% of 685) with regard
to new fintech startup formations, followed by
Germany and Spain (Ernst & Young, 2016). Up to this
point in time, this country had a supportive
regulatory regime, effective tax incentives, and –
with London – a powerful position as a global
financial center (GFC), attracting a high number of
entrepreneurs willing to engage in fintech activities
(Haddad & Hornuf, 2016).
For the 10 most relevant Asian countries,
Figure 4 provides analogous statistics by country
the differences) during the period 2000-2017. India
and China are at the top of the list (more than 60%;
172 out of 276 fintech startups). As well, it shows
fintech startup formations for the four
subcategories, which differ mainly by a higher share
of the payment sector (more than 31%) compared to
the European and the U.S. sample. This could be
explained by the fact that the Indian and Chinese
banking sectors are still considered underdeveloped
(Ernst & Young, 2016; Shabaz, Bhattacharya, &
Mahalik, 2018).
Altogether, Figures 1-4 illustrate the
heterogeneity of global fintech development. Since
the year 2000, the U.S. and the UK have been
the countries with the most dynamic fintech

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development. Nevertheless, it can be stated in recent
years that India and China have caught up in terms
of fintech activity (Ernst & Young, 2016; PwC, 2016).
Eight of the 27 fintech unicorns (privately held
startup companies valued at over $1 billion)
worldwide meanwhile are Chinese companies
(Moysan, 2018). And although not in terms of
fintech activity, but in terms of total users and
market size, China is now considered the biggest
fintech market worldwide. After detecting this
heterogeneity, we explore possible explanations,
using an evolutionary economic approach.
In the sense of Schumpeter (1911, 1942)
fintechs have disruptive power, driving the process
of innovation by “creative destruction”, invading
the domain of traditional banks (Paul, 2016; PwC,
2016). Using new technology (e.g., big data software,
or blockchain technology) to create innovative
products/services or processes (e.g., robo-advice,
see Arwas and Soleil, 2015), fintechs caught
traditional financial intermediaries unaware, as
particularly banks from 2007 to 2009 struggled
with the consequences of the financial crisis.
While fintechs succeeded in introducing various
types of financial innovation, the demise of the old
structure remains limited (World Economic Forum,
2017, p. 13).
According to the views of Hayek (1945, 1994),
fintechs could have special technological knowledge
(e.g., of mobile functionality or cloud computing, see
Brear, 2015), enabling them to penetrate traditional
banking markets. Thus, they can create a new form
of financial knowledge that traditional banks do not
yet possess. However, traditional banks could adopt
or acquire this technology (Deutsche Bank, 2015;
Anand & Mantrala, 2019) to reduce the newcomers’
knowledge advantage. At the same time, savings
banks and cooperative banks could be less affected
by this fintech knowledge than privately owned
commercial banks, because the former work closer
to their customers (in the sense of Hayek, 1948, they
know better about the special circumstances of their
clients) to establish long-lasting relationships, and
are less technology-dependent.
Another explanation of different patterns of
fintech evolution is offered by North’s concept of
informal rules (social norms, see North, 1990; for
an extensive elaboration, see also Pejovich, 1999).
According to this Nobel laureate, informal rules are
based on culture or social interactions and thus can
provide an explanation of market processes. While
the U.S. and China reacted with rapid regulatory
countermeasures to the recent crises, Europe’s
regulatory response appeared rather hesitant. While
the U.S. – at least from 2008-2010 – preferred
deregulation to financial market stability, China’s
culture is coined by hierarchy and one-party state
67
command thinking, which also made quick
deregulation possible (Dumbaugh & Martin, 2009).
Compared to Europe, U.S.-American and Chinese
institutional and cultural structures allowed for fast
political action and decisions after the financial
crisis (Li, Willett, & Zhang, 2012; Reyes, 2013), from
which fintechs in these countries profited. As a most
prominent example of respective institutional
change, the U.S. Dodd-Frank Act was designed to
monitor traditional banks more closely, thus adding
to the fintechs’ regulatory advantage.
From an evolutionary point of view, it can also
be questioned to what extent fintechs lead to a kind
of “Darwinian” competition of (financial) systems
according to the diversification of the landscape and
possibilities of financing (see, more general,
Johnson, Price, and Van Vugt, 2013). More different
types of banks/banking business models could
enhance the stability of the financial system due to
decentralization and diversification (e.g., in the area
of lending) and mitigate the effects of financial
shocks (Financial Stability Board, 2017; and, more
generally, Weller and Zulfiqar, 2013). Thus,
alternative systems, especially capital market
financing versus bank financing (Hackethal &
Schmidt, 2004), can be examined here in the context
of fintech startup formations. The system-related
reasoning is that a well-developed capital market
could be more conducive for fintech entrepreneurs
(e.g., according to faster capital access for funding
their business).
Finally, in addition to the economic,
technological and cultural factors listed so far, legal
influencing factors, e.g., rulemaking by legislators or
the enforcement of these rules by actors within
regulatory authorities, could also incentivize fintech-
related entrepreneurship. Especially for banks,
recent crisis-driven (re-)regulation has resulted in
increasing regulatory complexity and pressure –
i.e., finally, transaction cost – caused by stricter or
new capital rules, liquidity regulation, leverage ratio,
SIFI norms, stress testing, and more (Treleaven,
2015). While regulation is kind of a double-edged
sword for traditional banks (burden and protection
at the same time, see Deutsche Bank, 2015; focusing
liquidity regulation, also König, 2015), most of it
does not apply to fintechs (Yagiz, 2017). With regard
to regulatory innovation, regulatory know-how could
become more important for fintechs, too, causing
the respective cost of information collection and
processing (Lautenschläger, 2017), but also allow for
another fintech variation, i.e., aforementioned
regtechs.
Table 2 summarizes the previous findings and
emphasizes further details in order to highlight
different environments of U.S., European and Asian
fintech entrepreneurship.
 Risk Governance & Control: Financial Markets & Institutions / Volume 11, Issue 1, 2021
Table 2. Possible evolutionary drivers of U.S., European, and Asian fintech market processes
Factors US fintech market
 largest fintech sector worldwide (market share by
investments of more than 50%, see Accenture, 2016;
International Trade Administration, 2016);
 higher profits of financial intermedi-aries due to
Economic factors advanced deregulation (Baily, Klein, & Schardin 2017);
 a good position for incubating ermer-ging fintech
companies by significant GFC, e.g., in New York and
Chicago (demand, infrastructure, capital and talents, see
International Trade Administration, 2016).
 banks and stock exchange operators in the U.S. are  globally, UK has one of the highest penetration of
increasingly using blockchain technology for financial cellular and web (eMarketer, 2017);
Technological transactions (Manning, 2017);
factors  the predominant payment method in U.S. in the area of transactions (online banking, see Eurostat, 2018);
e-commerce is still the credit card (rather than e-wallet, see  payment via e-wallets in Germany more popular than
Worldpay, 2015).
 advanced deregulation of the general financial sector in
the U.S. due to the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (Baily et al., 2017);
Legal factors  however, despite their huge investment pool and
financial resources, U.S. rule-making especially for fintechs
(e.g., in the area of lending) is less liberal than other world
regions (Dykema Gossett PLLC, 2017).
 positive post-crisis cultural mindset (due to
management of the banking sector and high capacity for
innovation, see Reyes, 2013);
 slope to quick “clean up” after the financial crisis
Cultural factors
(monetary and fiscal policy has acted immediately, see
Bernanke, 2009; U.S. Congress, 2009);
 cultural motto by policy: “fast deregulation” (see
Sherman, 2009; Sunstein, 2017).
European fintech market Asian fintech market
 fast growing fintech markets in China and India (Ernst &
 UK as the biggest fintech market in Europe (followed Young, 2016; PwC, 2016);
by Germany, see Haddad and Hornuf, 2016);  China’s banking sector is until now compared to the U.S.
 the availability of funds in the UK is good for fintech and Europe underdeveloped but digital infrastructure is
startups (Henry, 2016); well (Wang & Dollar, 2018);
 Brexit could be an obstacle to the UK fintech market but  generation Y and millenials in China account for 45% of
on the other hand a driver for the German or French fintech consumption (Chinadaily, 2016);
market due to changing company headquarters (Financial  India has by far the largest worldwide unbanked
Times, 2016; Business Insider Intelligence, 2017); population (measured in people without a bank account)
 profits of European financial inter-mediaries against (PwC, 2016);
the U.S. market are still low and as a result competitiveness  the payment segment has been the most funded within
remains in danger (European Central Bank, 2017); the Indian fintech landscape (PwC, 2016);
 growing insurtech sector in Europe (Ernst & Young, 2017).  also strong growth in the Indian insur-tech sector (PwC,
2016, Swift, 2017).
 in China the smart-phone is becoming the universal
internet access device (Kontomatik, 2017);
 56% of the Germans use the internet for banking
 China has 710 million internet user (mid 2016) and thus
more than the U.S. and Europe combined (Kontomatik,
2017, Wang & Dollar, 2018).
in the U.S. and UK (Worldpay, 2015).
 the Financial Conduct Authority (FCA) as UK regulator,
has been dynamic in their method by partaking with
innovators (Financial Conduct Authority, 2017);
 simplified regulatory requirements in UK by the
 strong, proactive policy level support from the Indian
“Regulatory Sandbox” since 2016 (Financial Conduct
government (e.g., startup India programm, see Kontomatik,
Authority, 2017; New Posts, 2017);
2017);
 tax incentives for entrepreneurs above all in the UK
 the action plan for Chinese investors and fintech startups is
(Financial Conduct Authority, 2017; New Posts, 2017);
to focus on what the Communist Party seems to adopt and
 in Europe, measures are still being taken to stabilize the
implement for its citizenry (Kontomatik, 2017);
financial sector (Financial Times, 2016) and standardize
 Chinese government focuses on curbing issues in the P2P
prudential activities (but complex political organization with
lending space (Bloomberg, 2016);
28 states can lead to unequal regulation);
 Singapore is also considering the introduction of simplified
 facilitation of European fintechs through the adopted
regulatory requirements in form of a “Sandbox” scheme
“Payment Services Directive” by the European Parliament
(Monetary Authority of Singapore, 2016).
(European Commission, 2015);
 European Union wants to support fintechs’
crowdfunding solutions (modernization of the “Prospectus
Directive”, see Dorfleitner et al., 2017).
 Chinese crisis management after the onset of the
financial crisis started comparably early (bpb, 2009, Li
et al., 2011);
 the head of the Chinese Communist Party in China already
in mid 2008 used the strict party hierarchy to implement swift
 no fast-acting mindset (Eurozone reacted more hesitantly
monetary and fiscal measures across all state and party
to the financial crisis, see Matei and Calapod, 2014);
bodies, regardless of formal hurdles (bpb, 2009);
 cultural motto by policy: “financial market stability
 culture of hierarchy and one-party state in China based
preferred over deregulation” (see European Commission, 2011;
on times of command economy (Dumbaugh & Martin,
Lambert, 2016).
2009, Xia, 2011; Jing, Cui, & Li, 2015);
 India has a largely bilingual population because of the
British colonial legacy, which facilitates the adoption of
British patterns of behavior also in the fintech market
(Kontomatik, 2017).
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 Risk Governance & Control: Financial Markets & Institutions / Volume 11, Issue 1, 2021
Based upon the above-market features,
different paths of fintech evolution prevail.
Therefore, subsequently, a thorough empirical
analysis using a generalized linear mixed model is
carried out in order to reach deeper findings.
Besides startup data of the CrunchBase
database (as mentioned before) of 76 countries in
the period from 2000 to 2017, we retrieved data on
economic, technological, legal, and cultural
influencing factors from published reports of
supranational institutions3. Using these factors, we
formulate testable hypotheses regarding drivers of
fintech startup activity in different regions.
To test whether well-developed capital markets
and a more fragile financial sector positively affect
the frequency of fintech startups, we include
economic factors, like the size of the gross domestic
product (measured by GDP per capita), the number
of commercial bank branches (measured by
commercial bank branches per 100,000 adult
population), the banking intermediation rate
(measured by the averaged share of stock market
and public bond market capitalization to GDP in
percent), the soundness of banks (measured by
response to the survey4 question: “In your country,
how do you assess the soundness of banks?”) and
the share of cooperative banks (measured by
the averaged share of the domestic market share of
deposits and the domestic market share of loans of
all cooperative banks in a given country). Yartey
(2008) suggests that income level is a good measure
of capital market development while Levine (2002),
Black and Gilson (1999) state that more commercial
bank branches and a lower banking intermediation
rate allow (here: fintech) entrepreneurs to better
access to the necessary funds. On the other hand,
a more fragile financial sector could explain the
sudden upsurge of fintech startups in the wake of
the financial crisis due to the lack of trust of
customers in banks (Guiso, Sapienza, & Zingales,
2013). Schindele and Szczesny (2016) further explain
that the financial crisis and subsequent crisis-driven
regulation incentivized banks to lend to SMEs more
restrictively, thus increasing the cost of debt for
the latter. Groeneveld (2011) and Chiaramonte, Poli,
and Oriani (2015) analyze that a low rate of
cooperative banks in a country can cause a higher
fragility of the financial sector. In summary,
the subsequent hypotheses can be derived:
H1a: There is a positive correlation between
well-developed capital markets (measured by a high
GDP, many commercial bank branches, and a low
banking intermediation rate) and fintech startup
activity (measured by the number of fintech startups).
H1b: There is a positive correlation between
a more fragile financial sector (measured by low
soundness of banks and a low share of cooperative
banks) and fintech startup activity (measured by
the number of fintech startups).
In order to analyze whether the availability of
the latest technology positively influences fintech
startup activity, we include technological factors,
like the latest technology (measured by response to
3
In particular the World Economic Forum Global Competitiveness Report or
the IMF’s Financial Access Survey (hereafter: “survey”). A table of the
factors retrieved is obtainable from the corresponding author upons request.
4
The survey questions are taken from the World Economic Forum Global
Competitiveness Report.
69
the survey question: “In your country, to what extent
are the latest technologies available?”), mobile phone
subscriptions (measured by the number of mobile
telephone subscriptions per 100 adult population),
internet penetration (measured by the number of
internet subscriptions), and government tech
procurement (measured by response to the survey
question: “In your country, to what extent do
government purchasing decisions foster innovation?”).
Ernst & Young (2014) declare that the latest
technology is strongly determined by a high mobile
phone subscription. Dosi (1982), Arend (1999), Stam
and Gurnsey (2007) argue that high internet
penetration and government tech procurement are
necessary to support startups generally in building
their business models on these technologies.
This leads to:
H2: There is a positive correlation between
the availability of the latest technology (measured by
a high mobile phone subscription, high internet
penetration, and a high level of government tech
procurement in technology) and fintech startup
activity (measured by the number of fintech startups).
To test whether an advantageous legal/
regulatory environment positively affects fintech
startup activity, we include legal (including
regulation) factors, like the efficiency of the legal
system (measured by response to the survey
question: “In your country, how efficient are the legal
and judicial systems for companies in setting
disputes?”), government regulation (measured by
response to the survey question: “In your country,
how burdensome is it for companies to comply with
public administration‟s requirements?”) and
the strength of law (measured by the degree to
which collateral and bankruptcy laws protect the
rights of borrowers and lenders and thus facilitate
lending in a country). According to previous
research, the influence of law and regulation on
entrepreneurship is ambiguous. On the one hand,
a high level of efficiency of the legal system can
strengthen institutional reliability and lower
regulatory risk, thus incentivizing entrepreneurs to
pursue (fintech) innovations (Treleaven, 2015).
On the other hand, a lower level of regulation means
more (entrepreneurial) freedom, and more (room
for) innovative behavior, respectively (Levie & Autio,
2011). Thus, our third hypothesis is:
H3: There is a positive correlation between
an advantageous legal/regulatory environment
(measured by a high level of efficiency of the legal
system, a lighter burden of regulation, and a lower
strength of law) and fintech startup activity
(measured by the number of fintech startups).
Finally, in order to evaluate whether cultural
conditions influence fintech startup activity, we
include cultural factors, like the public trust in
policy (measured by response to the survey
question: “In your country, how do you rate the
ethical standards of politicians?”) and Hofstede’s
(1980) cultural dimensions of power distance and
individualism (measured by a) the degree to which
the less powerful members of a society accept and
expect that power is distributed unequally, and
b) the degree to which individualism is more
preferred to collectivism in a society). The reasoning
is that in countries with a high degree of public trust
in government due to reliability, transparency, and
 Risk Governance & Control: Financial Markets & Institutions / Volume 11, Issue 1, 2021
efficient services (OECD, 2017) entrepreneurship can
develop more easily (Johnson, 2013). As well,
appreciating power distance and individualism can
support stringent and fast (political) decision-
making processes (Hofstede, 1980; Hofstede,
Neuijen, Ohayv, & Sanders, 1990), especially in times
of crisis, and also inner driving forces to becoming
an entrepreneur, so that companies can prosper.
Thus, the subsequent hypothesis can be derived:
H4: There is a positive correlation between
a high level of selected quantifiable cultural factors
(measured by a high degree of public trust and
a great appreciation for power distance/
individualism) and fintech startup activity (measured
by the number of fintech startups).
In order to control for the entrepreneurial
environment in a particular country, the state of
business cluster development (geographic
concentrations of firms, suppliers, or producers of
related products or services) and the size of the
labor market (for the relevance of the labor market
as a source of entrepreneurial supply, see Choi and
Phan, 2006), in the respective country were included
in the analysis.
The empirical model comprises five dependent
variables: the number of fintech startups in a given
year and country and the number of fintech startups
in a given year and country for each of the four
categories – financing, asset management, payment,
and other business activities. In order to analyze
the economic, technological, legal, and cultural
determinants that influence fintech
entrepreneurship resulting in startups, the paper
uses a panel dataset that consists of 1,368
observations given an 18-year observation period
from 2000 to 2017, covering 76 countries. According
to our interest in the effects of institutional changes
on entry and potential reverse causality, we lagged
independent variables in our models by 2 years
( )
where, is the number of fintech startup formation
in country i and year t, are the regression
coefficients for the independent variables, and L(.)
represents the link function for the negative binomial
distribution function (Dobson, 2002).
4. RESULTS AND DISCUSSION
The descriptive statistics, which are shown for
the dependent and independent variables in Table 3,
reveal two issues we have to take into account for
the subsequent analyses. First, a number of not
available data is present, especially for the years
2000 to 2003 and for the share of cooperative
banks. For this variable, we have data only for
25 (predominantly European) of the 76 countries.
As we do not want to completely omit this variable
from the analyses, we have to form two subgroups.
70
(York & Lenox, 2014). To take the fast changing
environment of fintech startups into account and to
test for the sensibility of the results, we also lagged
the dependent variable for the first model by one
year. The results were almost identical. Therefore
the final sample consists of 1,216 observations.
Due to our measuring the dependent as a count
variable, classical OLS regression models are not
applicable here. The Poisson distribution is often
used to model count data but requires that the mean
and variance of the dependent variable are equal
(Dobson, 2002; Wooldridge, 2002). A simple
diagnostic is therefore a plot of the group variances
against the group means with the country serving as
grouping variable for the counts. Due to the high
number of fintechs in these countries, we had to
omit the U.S. and the United Kingdom for these
plots, because their means and variances were
outliers. The Poisson distribution will then result in
a slope equal to one, whereas overdispersed
distributions, such as the negative binomial, will
have slopes greater than one. The resulting plots
(obtainable from the corresponding author upon
request) display that for three of the dependent
variables, most of the points lie above the line with a
slope of one indicating that overdispersion is
present. Therefore, we took a negative binomial
error distribution for model building. Finally, it can
be stated that non-normal distributed response
variables can be analyzed with the so-called
generalized linear models (Dobson, 2002) and
according to time-dependent observations, we use
a generalized linear mixed model, which is specified
as follows (to account for differences between the
different years and countries, both effects were also
included in the model although not mentioned in the
formula. Furthermore, the standard errors were
clustered by the countries):
(1)
For the first subgroup – consisting of (fintechs of) all
countries – we omitted this variable. For the second
subgroup, we included only the 25 countries for
which all variables including the share of
cooperative banks can be analyzed. The years 2000
to 2003 had to be omitted from the analysis because
too many input variables were completely missing.
So the analyses include values for the dependent
variable starting from 2006 and values for the
independent variables starting from 2004.
The second issue to be taken into account is that
three variables (GDP per capita, commercial bank
branches and labor force) show right-skewed and
heavy-tailed distributions. Thus, we took their
natural logarithms for further analyses. Descriptive
statistics for the three logarithmized variables reveal
that both skewness and kurtosis were substantially
reduced.
 Risk Governance & Control: Financial Markets & Institutions / Volume 11, Issue 1, 2021

Table 3. Descriptive statistics of the dependent and independent variables from 2000 to 2017

Variable n mean median sd min max skewness kurtosis

Total number of fintechs 1216 2.33 0 12.77 0 202 10.84 134.01
Asset management fintechs 1216 0.17 0 1.01 0 19 11.93 180.14
Financing fintechs 1216 1.38 0 7.85 0 136 11.46 152.10
Payment fintechs 1216 0.47 0 2.44 0 44 10.90 145.92
Other fintechs 1216 0.30 0 2.03 0 37 11.53 155.92
GDP per capita 1169 20769.33 13346.20 20381.01 235 119225.40 1.54 2.92
Commercial bank branches 1013 23.10 18.22 18.79 0.39 116.08 1.97 5.12
Bank intermediation rate 1053 45.68 41.28 26.68 0.34 99.79 0.27 -1.02
Soundness of banks 849 5.42 5.50 0.92 1.40 6.90 -0.89 1.07
Share of cooperative banks 381 13.16 10.00 11.01 0.10 38 0.75 -0.54
Latest technology 852 5.20 5.30 0.93 2.60 6.90 -0.44 -0.54
Mobile phone subscriptions 1139 90.59 95.82 44.11 0.21 235.61 -0.14 -0.22
Internet penetration 1200 43.29 43.10 28.45 0.10 97.30 0.05 -1.32
Government tech
851 3.78 3.80 0.61 2 5.60 0.22 -0.12
procurement
Efficiency of legal framework 849 4.24 4.20 1.05 2 6.60 0.17 -0.95
Burden of government
851 3.37 3.30 0.75 1.70 5.70 0.53 0.03
regulations
Strength of legal rights 848 5.95 6.00 2.45 0 12 0.12 -0.89
Public trust 851 3.36 3.20 1.27 1.30 6.50 0.54 -0.69
Power distance 1056 0.60 0.62 0.72 0.11 1 -0.17 -0.92
Degree of individualism 1056 0.46 0.40 0.23 0.13 0.91 0.30 -1.22
Cluster development 860 4.10 4.00 0.72 2.70 5.60 0.17 -0.92
Labor force 1168 35629446.17 8411078 104389552.7 144991 787109802 5.72 34.49
Notes: The number of data varies depending on the variable because for the years 2000 to 2003 and for the share of cooperative
banks some data are missing. sd = standard deviation.

Next, we checked for multicollinearity by
calculating variance inflation factors (VIF) for all
independent variables. For each independent model
variable j, linear regression is performed with this
variable as a function of the other independent
variables. Then, , where is
the coefficient of determination of this regression.
The higher the VIF, the higher the multicollinearity.
As a rule of thumb, if exceeds 10, which
corresponds to >= 0.9, variable j is considered to
be highly multicollinear (Gujarati & Porter, 2009).
The variable efficiency of the legal framework
indicates a high variance inflation factor of 11.69
(the other variables range from 2.05 to 8.20).
Pairwise correlations with the other independent
variables show a high correlation (0.82) with public
trust. For this reason, we omitted the variable
efficiency of the legal framework from further
analyses (so that the highest level of the variance
inflation factor is now 6.92).
Altogether, this leads to three different models
for the total sample: One model for the reduced
sample of 25 countries, for which the share of
cooperative banks has been measured, one model
for all countries without the share of cooperative
banks as an independent variable, and a third model
for the latter, but excluding the U.S. in the sense of
a robustness check as the U.S. represents the largest
sub-sample. The results are displayed in subsequent
Table 4 for the total fintech sample (analogous
tables for each of the four basic fintech types are
available upon request from the corresponding
author). For each model, the parameter estimates are
presented, significant parameters are marked with
asterisks (* p < 0.1; ** p < 0.05; *** p < 0.01).

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 Risk Governance & Control: Financial Markets & Institutions / Volume 11, Issue 1, 2021

Table 4. Drivers of worldwide fintech startup formations from 2000 to 2017

Total number of fintechs

Model 1 Model 2 Model 3
incl. share of coop. banks excl. share of coop banks excl. share of coop. banks
incl. U.S. incl. U.S. excl. U.S.
Estimate Std. est. Std. error z value Pr( > |z|) Significance Estimate Std. est. Std. error z value Pr( > |z|) Significance Estimate Std. est. Std. error z value Pr( > |z|) Significance
Intercept -23.676 4.555 -5.198 0 *** -21.434 2.172 -9.867 0 *** -22.003 2.281 -9.647 0 ***
Ln GDP per capita 1.052 0.098 0.384 2.737 0.006 *** 0.495 0.046 0.171 2.895 0.004 *** 0.653 0.061 0.173 3.764 0 ***
Ln commercial bank branches 0.011 0.001 0.362 0.03 0.976 0.054 0.004 0.166 0.327 0.743 0.12 0.008 0.156 0.773 0.439
Banking intermediation rate -0.002 -0.003 0.005 -0.293 0.77 0.01 0.02 0.004 2.484 0.013 ** 0.011 0.024 0.004 3.139 0.002 ***
Soundness of banks -0.04 -0.003 0.104 -0.383 0.702 0.022 0.002 0.069 0.32 0.749 0.026 0.002 0.069 0.372 0.71
Share of cooperative banks 0.002 0.001 0.011 0.145 0.885
Latest technology -0.015 -0.001 0.27 -0.055 0.957 0.016 0.001 0.174 0.091 0.928 -0.012 -0.001 0.178 -0.069 0.945
Mobile telephone subscriptions -0.013 -0.045 0.007 -1.957 0.05 * 0.001 0.003 0.003 0.305 0.76 0.002 0.006 0.003 0.593 0.553
Internet penetration 0.015 0.034 0.011 1.42 0.156 0.006 0.013 0.007 0.885 0.376 -0.01 -0.022 0.007 -1.44 0.15
Government tech procurement -0.019 -0.001 0.251 -0.076 0.939 0.415 0.02 0.182 2.282 0.022 ** 0.565 0.027 0.177 3.193 0.001 ***
Efficiency of legal framework Excluded due to high correlation with public trust Excluded due to high correlation with public trust Excluded due to high correlation with public trust
Burden of governmental
0.412 0.024 0.259 1.587 0.112 0.474 0.028 0.17 2.779 0.005 *** 0.279 0.016 0.173 1.615 0.106
regulations
Strength of legal rights -0.004 -0.001 0.059 -0.067 0.947 0.033 0.006 0.039 0.854 0.393 0.086 0.016 0.039 2.172 0.03 **
Public trust -0.197 -0.019 0.161 -1.218 0.223 -0.346 -0.034 0.103 -3.354 0.001 *** -0.277 -0.027 0.104 -2.676 0.007 ***
Power distance 1.51 0.026 1.841 0.82 0.412 -0.108 -0.002 0.649 -0.167 0.867 -0.181 -0.003 0.625 -0.29 0.772
Degree of individualism 4.021 0.072 1.366 2.944 0.003 *** 2.436 0.043 0.684 3.561 0 *** 2.378 0.042 0.674 3.528 0 ***
Cluster development 0.049 0.003 0.227 0.216 0.829 -0.064 -0.004 0.177 -0.362 0.717 -0.142 -0.008 0.178 -0.797 0.425
Ln labor force 0.554 0.075 0.16 3.468 0.001 *** 0.688 0.093 0.083 8.245 0 *** 0.618 0.029 0.083 7.438 0 ***
Year 2007 0.19 0.188 1.012 0.311 0.049 0.217 0.227 0.82 0.216 0.328 0.659 0.51
Year 2008 0.404 0.213 1.9 0.057 * 0.245 0.216 1.132 0.257 0.549 0.308 1.781 0.075 *
Year 2009 0.441 0.266 1.66 0.097 * 0.391 0.255 1.533 0.125 0.947 0.316 3.001 0.003 ***
Year 2010 0.689 0.331 2.081 0.037 ** 0.728 0.272 2.672 0.008 *** 1.274 0.334 3.812 0 ***
Year 2011 1.12 0.356 3.144 0.002 *** 1.092 0.286 3.816 0 *** 1.747 0.346 5.056 0 ***
Year 2012 1.268 0.339 3.746 0 *** 1.229 0.286 4.293 0 *** 1.973 0.338 5.83 0 ***
Year 2013 1.474 0.344 4.286 0 *** 1.553 0.319 4.873 0 *** 2.338 0.354 6.597 0 ***
Year 2014 1.544 0.352 4.382 0 *** 1.655 0.317 5.223 0 *** 2.532 0.36 7.043 0 ***
Year 2015 1.225 0.351 3.486 0 *** 1.421 0.344 4.126 0 *** 2.322 0.369 6.289 0 ***
Year 2016 0.761 0.4 1.903 0.057 * 0.666 0.353 1.887 0.059 * 1.649 0.395 4.171 0 ***
Year 2017 -0.625 0.467 -1.338 0.181 -0.458 0.47 -0.974 0.33 0.965 0.428 2.254 0.024 **
Log Likelihood -387.104 -828.712 -760.944
AIC 834.2 1715.4 1579.9
BIC 938 1846.1 1710
Observations 243 669 657
Countries 25 64 63
Notes: The variable efficiency of the legal framework indicates a high variance inflation factor of 11.69. Pairwise correlations with the other independent variables show a high correlation, especially with
public trust (0.82). For this reason, we omitted this variable from further analyses. Std. est. = Standard estimate; Std. err. = Standard error.
Significant parameters are marked with asterisks: * p < 0.1; ** p < 0.05; *** p < 0.01.

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 Risk Governance & Control: Financial Markets & Institutions / Volume 11, Issue 1, 2021
Table 4 shows the estimates for the total
number of worldwide fintech startup formations
based on the negative binomial error distribution
model as outlined in Section 3. The model
underscores the role of economic, technological,
legal, and cultural factors in shaping the formation
of this new industry. Thus, we find a significant
positive relationship between ln (GDP per capita)
and fintech startup formations, with a high
statistical significance (p < 0.01) in all three models.
The standardized estimates show the highest resp.
second highest values (Model 2) of all independent
variables making this variable the most important.
Furthermore, we find with a low banking
intermediation rate another significant evidence
(at least in Models 2 and 3) for an economic factor
(p < 0.05 and p < 0.01). Although there is no proof
for the impact of the number of ln (commercial bank
branches) on fintech startup formations, we cannot
reject hypothesis 1a that these formations occur
more frequently in countries with well-developed
capital markets (regardless of the U.S. being
included in the sample or not). On the contrary, H1b
has to be rejected due to a lack of significant
relevance of the soundness of banks and the share of
cooperative banks on worldwide fintech startup
formations (regardless of the model)5.
For Models 2 and 3, we find a positive
significant relationship between government tech
procurement, with relatively low values for the
standardized estimates, and fintech startup
formations (while in Model 1, the mobile phone
subscriptions are weakly significant). We thus cannot
reject H2 that this new industry occurs more
frequently in countries where the latest technology
is readily available. Nevertheless, there is no
evidence that internet penetration has an impact on
fintech startup formations. Furthermore, our results
show in Model 2 a significant positive relationship
(p < 0.01) between a low burden of government
regulations and fintech startup formations. Although
the variable strength of legal rights is not significant
in Model 2 (as the model with the most
observations), we cannot reject H3 that fintech
startup formations occur more frequently in
countries with an advantageous legal/regulatory
environment.
In line with H4, we detect (for all of the three
models) a significant positive relationship between
a cultural factor like the degree of individualism and
fintech startup formations, with relatively moderate
values for the standardized estimates. While there is
a significant negative relationship between public
trust and fintech startup formations (at least for
Models 2 and 3), we do not find any significant
relationship between the cultural factor of power
distance and fintech startups. The influence of
cultural factors, therefore, is – due to significant
positive and negative relationships – not
unambiguous. The findings might stem from the fact
that fintech startup formations are not driven by
trust in policy in the sense of reliability and
transparency, but rather by distrust in politics due
to the banking and financial crisis. According to this
5
For the model with a one year lag, internet penetration became also
significant (beta = 0.019, p = 0.069) compared to p = 0.156 for the 2 years
lag. This can be a hint that internet penetration is useful for a short term boost
of the total number of fintechs, whereas in the long run, other variables are
more relevant.
73
mixed picture of cultural factors, we cannot reject
H4 completely.
Statistics of each fintech category are
calculated with two models (inclusive and exclusive
share of cooperative banks; a model excluding the
U.S. is not calculated due to small sample size) and
reveal similar significant results as the total sample.
The coefficients of ln (GDP per capita) and banking
intermediation rate are positive and significant for
three subcategories: financing, asset management,
and other fintechs. Moreover, the variable
government tech procurement has a positive and
significant effect on the formation of fintech
startups for financing and other fintechs. Fintech
startups providing asset management and payment
solutions apparently do not require the latest
technology for their businesses. Furthermore,
the variable burden of government regulation is
positive and significant for financing and asset
management fintechs, whereby a lower burden of
regulation is obviously more conducive to such
business models. In line with the total sample, all
four categories are negative (partly significantly)
correlated with the variable public trust. Finally,
the variable degree of individualism has a positive
and significant effect on the formation of fintech
startups for all categories, underlining the
fundamental role and importance of the individual,
especially in Western cultures. Contrariwise, it can
be stated that for payment fintechs the variable
degree of individualism is positive and significant as
well but much weaker than for the other fintechs,
which could result from the fact that in Asian
cultures the relevance of the community is more
important than the individual and second, as already
mentioned in Section 3, Asian cultures are still
partially underbanked, so that payment solutions
are more important.
Accordingly, the following implications for
(prospective) fintech entrepreneurs, their
competitors, and also potential regulators/
policymakers can be derived from our results and
against the backdrop of previous research:
 GDP is an important driver for fintech
evolution. Evolution therefore could be inhibited in
times of a (pandemic or economic) crisis.
Accordingly, fintechs in countries with little fintech
evolution could benefit from measures that promote
GDP (e.g., tax incentives for companies or interest
rate subsidies).
 Financing fintechs could have emerged due to
traditional funding gaps (especially in countries with
low banking intermediation rates) and less flexible
incumbent financial intermediaries (according to
innovation) that small and medium-sized firms face
worldwide, confirming the intermediate relevance of
fintechs.
 The influence of the regulatory burden is
ambivalent. On the one hand, further funding
constraints according to increased regulation after
the financial crisis subsequently contributed to
the dynamic evolution of fintech startups. On the
other hand, the empirical data show that a low
regulatory burden is just starting to promote fintech
startups. Therefore, countries with high regulatory
burden should make regulatory processes more
effective and efficient if they want to push fintech
evolution.
 Risk Governance & Control: Financial Markets & Institutions / Volume 11, Issue 1, 2021

 Government tech procurement is another
relevant driver of fintech startup activity.
Accordingly, countries with low government tech
procurement had to invest in IT infrastructure if
they want to support fintech growth.
 Entrepreneurial activities often take place in
specific regions perceived as startup or fintech hubs
and require highly specialized individuals
(underlining the factor of individualism), who can
quickly implement their business idea using existing
cluster networks. Nevertheless, new fintech business
models can easily be copied by incumbent financial
intermediaries due to these institutions’ (financial)
capability to initiate projects of the size of a new
fintech undertaking rather promptly.
5. CONCLUSION
Using an evolutionary economics approach, our
paper analyzes different economic, technological,
legal, and cultural factors and their relation to
fintech startup activity in 76 countries. We find that
the U.S. – at least until 2017 – is the largest fintech
market according to startup activity, followed by the
United Kingdom, which – despite the Brexit – still is
a center of global fintech. Nevertheless, the Chinese
and Indian fintech market has grown substantially in
recent years which can be recognized by the fact
that one-third of the fintech unicorns are meanwhile
located in these countries. The empirical data show
that since 2015 a consolidation of fintech activity
has taken place at a high level. Likewise, the paper
shows that the worldwide fintech activity was
impacted unequally after the dot.com crisis and the
subprime/financial crisis according to a different
technology affinity of these crises.
Categorizing this new and innovative industry
in the subcategories of financing, asset management,
payment, and other fintechs, the paper
demonstrates that financing is by far the most
relevant segment in the worldwide fintech market.
Moreover, it can be stated that in countries with
a high GDP per capita, low banking intermediation
rate, support by government tech procurement, the
low burden of regulation, and a high degree of
individualism, fintech activity is more pronounced.
As fintechs still evolve with a strong growth
rate of the number of companies and the volumes
invested, these financial institutions will constantly
produce new phenomena that could be subject of
economic analysis, as illustrated by the recent
discussion of (big) fintechs and the (systemic) risk
involved (Carstens, 2019; Stulz, 2019). Regarding our
research question directed at the drivers of fintech
evolution, the aforementioned limitations of our
paper suggest that the following questions could be
considered for future work, besides an extension of
our analysis to further countries/regions:
 In how far do various fintech types show
different paths and patterns of development
(growth, market share, etc.)?
 Which are the predominant strategies of
traditional financial intermediaries in response to
fintechs (e.g., based on the seminal concept of
“make or buy?”) and in how far do they differ in
regions of strong (weak) fintech evolution?
 Are regulatory responses in line with fintech
evolution within the respective area of (national or
supranational) regulation?
And obviously, in some years there should be
thorough taking stock of fintech evolution vs.
banking evolution to show in how far the former de
facto endangered or even replaced the latter. Not
only recent governance-related scandals suggest that
fintech euphoria could be followed by fintech
disillusion (extensively, see Zeranski and Sancak,
2020). It is also the banks, which existence has been
challenged since they exist, and which have shown
enough competitive resilience to endure these
challenges, albeit by institutional change.

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